Obama Seeks Pressure on Congress from Governors

The White House stands in Washington, D.C. To emphasize the damage of the cuts, the White House yesterday released a state-by-state list of programs from education to public health that would be reduced this year. Photographer: Andrew Harrer/Bloomberg

Feb. 25 (Bloomberg) -- President Barack Obama urged the
nation’s governors to pressure Congress for a deal to avoid
automatic spending cuts scheduled to begin March 1, telling them
the impact would be felt in every state.

With the National Governors Association meeting in
Washington, the White House distributed a state-by-state list of
programs, including defense, education and public health, that
would be affected by the across-the-board reduction of $85
billion in this fiscal year.

“These impacts will not be all felt on day one, but rest
assured the uncertainty is already having an effect,” Obama
told the governors gathered at the White House as part of their
annual meeting. “While you are in town I hope that you speak
with your congressional delegation and remind them in no
uncertain terms exactly what is at stake.”

The solution can be found with “just a little bit of
compromise,” he said.

The across-the-board cuts, known as sequestration, would
shrink federal spending by $85 billion for fiscal 2013, which
ends Sept. 30, and total $1.2 trillion over nine years, out of
an annual federal budget of about $4 trillion. Congress mandated
the reductions as part of a 2011 deal to increase the U.S. debt
limit. They would be split almost evenly between defense and
non-defense spending.

Trading Blame

The White House and congressional Republicans are trading
blame for the impasse on the automatic cuts. Obama’s advisers
said yesterday they don’t expect to head off the reductions
before the deadline.

“Our hope is that we’ll be able to come to a solution,”
Dan Pfeiffer, a senior Obama adviser, said yesterday in a
conference call with reporters. “But there seems to be nothing
the Republicans are saying right now on Sunday to suggest that
by Friday they’re going to change their position.”

House Speaker John Boehner’s spokesman, Michael Steel, put
the blame on the administration. “The White House needs to
spend less time explaining to the press how bad the sequester
will be and more time actually working to stop it,” the
Republican said.

For all the concern in Washington, investors are signaling
that the $15.8 trillion U.S. economy is strong enough to weather
the reductions in federal spending. Home sales, consumer
confidence and employment are rebounding. Economists at FTN
Financial said in a report last week that, while being
characterized as a recession risk, sequestration cuts are less
than a third of the size of the tax increases on Jan. 1.

Market Reaction

The Standard & Poor’s 500 Index is up about 5.6 percent
this year. The benchmark was down 0.6 percent at 1,506.33 at
2:33 p.m. in New York after gaining as much as 0.7 percent in
the first hour of trading.

Treasuries rose, pushing the 10-year yield to a one-month
low on concern that Italy, the euro area’s third-largest
economy, may be at a political impasse, stoking demand for U.S.
debt as a refuge. The U.S. Dollar Index, which tracks the
currency against six of America’s biggest trading partners,
reached 81.916, its highest level since Aug. 20.

“The politicians are beginning to sound like Chicken
Little claiming the sky is falling” after Washington’s repeated
budget crises, said Brian Jacobsen, who helps oversee about $217
billion as chief portfolio strategist at Wells Fargo Advantage
Funds in Menomonee Falls, Wisconsin. “Maybe the sky is falling,
but they’ve exhausted us to the point of apathy.”

Economic Impact

If the impasse drags on, the Congressional Budget Office
has warned that reduced federal spending may lower the gross
domestic product and cost 750,000 jobs by the end of 2013. The
U.S. economy shrank in the fourth quarter, its worst performance
since the 2009 second quarter, when the world’s largest economy
was in recession, according to Commerce Department figures.

To emphasize the damage of the cuts, the White House
released a list of programs in each state that would be reduced
this year and has dispatched Cabinet secretaries with warnings.

Ohio would lose about $25.1 million in funding for primary
and secondary education, which may jeopardize about 350 teacher
and aide jobs, according to the White House. In New Jersey, the
Obama administration estimates that 1,300 children would be
eliminated from Head Start and Early Head Start services.

Airport Delays

Transportation Secretary Ray LaHood already has warned of
delays at major airports as the Federal Aviation Administration
makes air traffic controllers take unpaid time off. Towers at
some smaller airports may be closed.

Homeland Secretary Janet Napolitano said today the wait at
security-screening checkpoints may lengthen to four hours at
major airports and trucks and ships would be delayed at U.S.
ports, disrupting international trade. She said the department’s
various security functions would be diminished.

“I’m not here to scare people, I’m here to inform,”
Napolitano said at the daily White House briefing. “I don’t
think we can maintain the same level of security at all places
around the country with sequester.”

The automatic spending cuts “will have macroeconomic
consequences, cost hundreds of thousands of jobs across the
country and jobs throughout the private sector,” said Jason
Furman, the principal deputy director on the president’s
National Economic Council.

State Impact

The impact would be especially visible in states where
federal spending is higher, including Maryland and Virginia,
which have numerous federal facilities. In a Feb. 18 letter to
Obama, Virginia Governor Robert McDonnell, a Republican, said
the reductions may force his state into a recession.

Senator John McCain, an Arizona Republican, called on Obama
to initiate talks with lawmakers.

“I won’t put all the blame on the president,” McCain said
yesterday on CNN’s “State of the Union” program. “But the
president leads. The president should be calling us over
somewhere, Camp David, the White House, somewhere, and sitting
down and trying to avert these cuts.”

Republicans have faulted the president and the Democratic-controlled Senate for not acting on an alternative to replace
the cuts, while continuing to needle the White House for
originally suggesting the concept of sequestration in a deal to
raise the debt ceiling in 2011.

“Considering the House has twice passed legislation to
avoid the sequester, you would think White House would be
focused on getting the Senate to pass a plan that would do the
same instead of creating more PR stunts,” Republican National
Committee spokesman Sean Spicer said in an e-mailed statement.

Governors Warn

Over the weekend, both Republican and Democratic governors
said that while the federal government must reduce its budget
deficit, the across-the-board spending cuts would deal an
unnecessary blow to still-recovering state economies.

Mississippi Governor Phil Bryant, a Republican, said he was
most concerned about how the defense cuts could affect his
state, from the aerospace industry to shipyards. About 9,000
civilians who work for the Defense Department in Mississippi may
be forced to take unpaid time off, ship purchases may be
delayed, and a planned demolition at Mississippi’s Naval Air
Station Meridian could be scrapped, according to the White
House.

“These are real jobs and real families,” Bryant said in
an interview. “The president needs to stop holding campaign
rallies and get this thing done.”

Vermont Governor Peter Shumlin, chairman of the Democratic
Governors Association, said in his state it will force furloughs
in the National Guard, create delays at Canadian border
crossings, and cut into food and home heating aid for the poor.

“We’re finally seeing some prosperity, we’re finally
seeing some job growth, people are feeling better about the
future -- and this just absolutely kicks you in the knees,” he
said in an interview. “If this thing isn’t resolved, the states
can’t make up the difference.”